Report | Climate policies are not the culprit of high costs and social inequalities, but can be the solution. But the government must seize the opportunity

This week, the Government will discuss in the third reading an amendment to the Emissions Trading Act, which also includes so-called household allowances. Under ETS2, these will charge for emissions from road transport and local heating - so they can help invest in infrastructure, renewable energy and support socially vulnerable groups. EUROPEUM Institute research fellow Rebeka Hengalová and others write.

This week, Czech Government will discuss in the third reading an amendment to the Emissions Trading Act, which also includes the so-called household allowances. Under ETS2, these will charge for emissions from road transport and local heating, but the Czech Republic will be the net beneficiary of the proceeds from their trading. Allowances can thus help invest in infrastructure, renewable energy sources and support socially vulnerable groups. However, if ETS2 is not incorporated into Czech legislation, we risk fines, delayed access to finance and up to 4 times the cost of inaction compared to an ambitious climate policy. What will our government choose?

Recently, we have often seen in the media a short-hand linking climate action with rising energy prices and growing energy and transport poverty. Particularly talked about is the extension of the Emissions Trading Scheme, the so-called ETS2, which the government is delaying and which has stalled the approval of key climate and energy strategies. But this is not the case. If the government seizes the opportunity, climate policies, including ETS2, can be an effective tool to address the current economic and social challenges. Conversely, inaction and postponement in tackling the climate crisis may exacerbate social inequalities.

Climate policies have the potential to bring investment, new jobs and reduced costs for households, while helping to address the climate crisis, climate and humanitarian NGOs stress. However, the debate on necessary measures such as ETS2 is often complicated and lacks context, and some interest groups also use concerns about transition to promote their own interests. This is why EUROPEUM Institute, in cooperation with Climate Facts, Institute 2050, People in Need, Sound of Science, Association for International Affairs, Greenpeace Czech Republic, Centre for Transport and Energy and DUHA, organised a meeting with journalists to bring important facts and issues into the public debate and help direct attention to where the responsibility lies.

In the Emission Trading System (ETS), polluters pay for greenhouse gas emissions from their activities by buying so-called emission allowances. This mechanism is designed to factor the damage caused by burning fossil fuels into the price of fossil fuels and incentivise a switch to low-carbon and renewable energy sources. The new phase, called ETS2, will extend emission allowances to road transport and local heating of buildings, areas with great potential for reducing emissions.

This week the government is to discuss the third reading of the amendment to the Emissions Trading Act. It was supposed to include an extension of ETS2, but only to monitor and report emissions, not to trade them through allowances. The adoption of at least part of ETS2 is essential and the government should not delay this step any longer. The previously communicated narrative that ETS2 will be abolished is not only wrong, but also threatens our position within EU climate policy. For postponing the adoption of strategic energy and climate documents, the Czech Republic has been placed in non-compliance proceedings by the European Commission, and if it does not adopt even the current amendment to ETS2, we risk fines or the inability to draw on the Social Climate Fund.

The proceeds from the sale of allowances do not flow out of the Czech Republic. On the contrary, the ETS is also an important source of the funds we need for energy transformation, modernising heating or improving public transport, for example. The proceeds must be used for pro-climate measures and investments. ETS2 also includes financial and structural support for the most vulnerable households who do not have access to finance, for example, to upgrade their heating or decarbonise their mobility, through the Social Climate Fund. Overall, then, the ETS and ETS2 represent a step towards sustainability, environmental responsibility and economic stability and should therefore be seen as an opportunity, not a threat.

While the introduction of emission allowances may increase energy and fuel prices, it is important to remember that transport and energy poverty have long existed in the Czech Republic. These problems were greatly exacerbated during the energy crisis that erupted after the start of the Russian war in Ukraine. The main culprit at that time was high gas prices, not emission allowances. Currently, 3% of households in the Czech Republic face transport poverty and 2.7% face energy poverty.

In contrast, the introduction of ETS2 and the accompanying Social Climate Fund have the potential to bring systematic support to vulnerable households. This system can finance support for low-income households to move away from high energy intensity and dependence on unpredictable fossil fuel prices. But it is important that these revenues are actually invested in programmes that help transform household energy management, transport services and electrified public transport. This decision is in the hands of the government. The Czech Republic is a net beneficiary of the Social Climate Fund, which is financed by ETS2 and to which richer EU countries also contribute.

Europe is currently experiencing unprecedented warming, with this summer being the hottest since records began. The country is warming twice as fast as the world average. The extreme floods that we experienced in the Czech Republic a few weeks ago will be twice as frequent and up to 7% more intense without emission reductions, according to scientists . These are alarming figures. It is climate action that can help us mitigate these threats and prepare society for their impact.

These measures are costly, but the benefits we will gain from implementing them far outweigh the investment. By pursuing ambitious decarbonisation scenarios in line with the 1.5 °C temperature target, the European Union could already gain at least €1 trillion by 2030 through the development of new economic sectors and modernisation. For the Czech Republic, the co-benefits of rapid emission reductions would amount to around 439 billion crowns by 2030, i.e. 6.8% of GDP. Climate action can also bring an increase in new jobs of up to 2.5% and increase employment compared to inactivity. Conversely, what happens if we decide not to invest in climate investments? Inaction could cost up to 4 times more than investing in climate action. Moreover, it would be borne by the most vulnerable groups.

Authors: Marta Janko (Greenpeace Czech Republic), Rebeka Hengalová (EUROPEUM), with contributions from the authors of factsheet.

Rebeka Hengalová
Research Fellow